April 23 (Bloomberg) -- OAO Aeroflot, Russia’s largest
airline, plans to start a depositary receipt program in London
and New York this year to attract foreign investors and prepare
for a possible share sale, according to the carrier’s head.

“We are seeing fairly substantial interest from foreign
investors in emerging markets in general and in the transport
sector in particular,” Chief Executive Officer Vitaly Savelyev
said in an interview. Long-term funds based in the U.K. and U.S.
financial capitals are especially keen, he said.

Aeroflot, which already trades global depositary receipts
in Frankfurt, will change the ratio for the number of shares per
GDR to 5:1 in order to boost its liquidity, while commencing its
first American Depositary Receipt program.

The Russian government may sell Aeroflot shares this year
as part of a plan to raise 427 billion rubles ($13.5 billion)
through state asset sales to help balance the budget and reduce
its role in the economy. The Moscow-based airline’s management
has called for a delay until it consolidates regional carriers
acquired in 2011, and its value increases. The government last
June proposed exiting its full controlling stake by 2016.

Aeroflot aims to get the go ahead to trade over the counter
in London and New York this year, said Savelyev, who in April
2009 replaced Valery Okulov, the son-in-law of Russia’s first
president, Boris Yeltsin, as head of the carrier.

Share Disposal

Russia may offer investors about 1.5 percent of Aeroflot as
early as this year and will discuss the sale of a bigger stake,
state property agency head Olga Dergunova said last week.

“Market conditions should be taken into account before
privatization,” Savelyev said. “Unfortunately, the trend now
is negative. Share prices, including our stock, are falling as a
result of the global and European crises.”

The company’s shares are as much as 40 percent undervalued,
the CEO said, citing analyst estimates. Aeroflot has fallen 50
percent from a peak of 108.61 rubles in February 2008 and traded
0.2 percent lower at 51.60 rubles as of 1:28 p.m. in Moscow.

“Several reasons have caused low demand for Aeroflot
stock,” Savelyev said. “There is both an overhang risk from
our minority shareholder, National Reserve Bank, and investor
concerns about the results of the integration process.”

The fact that Aeroflot operates across a territory as large
and populous as Russia means the government probably won’t sell
out even if its share price gains, the CEO said.

Minority Holding

“If market conditions are good, the state may sell a
blocking stake,” he said, suggesting that a holding of 25
percent plus one share could be retained. “The picture will
become clearer by 2016.”

Aeroflot, which carried more than 120 million people a year
in the 1980s, was left with international routes after the
Soviet Union collapsed, and together with its subsidiaries
attracted 27.5 million passengers in 2012.

The airline, which is allied to Air France-KLM Group and
Delta Air Lines Inc. through the SkyTeam alliance, had replaced
a fleet dominated by Soviet-era aircraft such as the Tupolev Tu-154 with modern Airbus SAS jetliners. It has also ordered Boeing
Co.’s 787 Dreamliner, Airbus’s upcoming A350 model and the
Superjet-100 regional plane from Russia’s Sukhoi.

The main near-term task for management is to complete the
integration of four airlines acquired from state-backed Russian
Technologies in 2011 in return for a 3.55 percent shareholding,
led by St. Petersburg-based OAO Rossiya, which carried 4 million
passengers last year, Savelyev said.

Aeroflot will focus on premium and long-haul routes leaving
regional routes to subsidiaries, and also plans to create a low-cost airline, the executive said.

The opening up to competition of routes from Russia to
Italy and France has not dealt the “serious blow” that some had
envisaged, he said, with the company adding European flights so
that services to Rome and Milan now have 14 daily frequencies.

Further liberalization will allow further expansion on
existing routes and the addition of new destinations, he said.